Can US equities recover after the biggest weekly drop since March?

Disappointing jobs data and new tariffs shake US markets

United States (US) stock markets fell on Friday night as investors reacted to a weak July jobs report and a fresh round of tariffs announced by President Trump. For the week, the US 500 (S&P 500) fell 2.36%, its largest weekly decline since late March. The US Tech 100 (Nasdaq 100) dropped 2.19%, and Wall Street (Dow Jones) shed 1313 points, or 2.92%.

Participation rate decline tempers rising unemployment

The July employment report showed the US economy added only 73,000 jobs, below the 105,000 expected. The unemployment rate increased to 4.2% from 4.1%, as anticipated. The shock came from a significant downward revision to the previous two months, which reduced total jobs by 258,000 and lowered the three-month average payroll gain from 150,000 to just 35,000.

Furthermore, the rise in the unemployment rate to 4.2% was tempered by a decline in the participation rate to 62.2%. If the participation rate was still at 62.8%, as it was in November 2023, the unemployment rate would currently sit around 4.9%.

Political tensions heighten concerns

The grim jobs report marked the first clear evidence of sharp slowing in the hard data – likely due to uncertainty and slowing growth caused by President Trump's tariffs. This was the impact feared back in April when markets moved sharply lower on concerns of a sharp economic slowdown..

The situation on Friday was further exacerbated when Trump dismissed the head of the Bureau of Labor Statistics, claiming the data was 'rigged', raising red flags about politicisation and the potential erosion of data integrity. Trump also criticised Federal Reserve (Fed) Chair Jerome Powell, warning him to 'start cutting rates' or face consequences.

Rising rate cut expectations

Market reactions to Friday night’s events were swift and decisive. Equities and the US dollar tumbled, along with yields, which caused the odds of a 25 basis point (bp) Fed interest rate cut in September to rise to 95%, just a day after falling to 50% following the hawkish Federal Open Market Committee (FOMC) meeting.

Looking back, in 2024, the Fed kept rates on hold at its July meeting but delivered a 50 bp cut in September after a weaker-than-expected August jobs report. If upcoming labour market data surprises to the downside, there is a reasonable chance of history repeating itself in 2025.

Upcoming earnings and economic indicators

Looking ahead, aside from tariff headlines and digesting the implications of Friday night’s jobs report, second-quarter (Q2) 2025 earnings season continues this week with reports scheduled from Palantir, Pfizer, Caterpillar, Super Micro Computer, Rivian, Snap, McDonald's, Disney, Airbnb, Uber, Dash, Lyft, and Under Armour.

There will also be interest in the Institute for Supply Management (ISM) services purchasing managers' index (PMI), which is expected to rise slightly from 50.8 to around 51, signalling modest sector expansion.

US tech 100 technical analysis

We have been working with the view that the rally in the US Tech 100 from the 21 April 17,592 low is a Wave III (Elliott Wave Theory) and once it's complete, it should be followed by a Wave IV pullback.

In a post on our X account on Friday morning before the Friday night sell-off, we highlighted the following:

'The horrendous price action overnight featuring a bearish engulfing candle from the long-term trend channel resistance we have been tracking at 23,450 - 23,500ish', which warns that Wave III is complete at Thursday’s 23,589 high and that a Wave IV pullback is underway.

The break and close on Friday below support at 23,000 - 22,900 further increases confidence in this view and provides an initial target for the Wave IV pullback of 22,200 - 22,000 coming from former record highs.

A sustained break of this support band would then open the way for a deeper Wave IV decline towards support at 21,500 - 21,300.

US tech 100 daily chart

US 500 technical analysis

We have been working with the view that the rally from the 21 April 5101 low was a Wave III (Elliott Wave) that should be followed by a Wave IV pullback.

In last week's update here, we flagged the US Tech 100 was at critical resistance and refreshed the downside levels in the US 500 which might indicate a Wave IV pullback is underway.

Specifically, a sustained break of short-term support at 6200 - 6180 would greatly increase the chances that a Wave III is complete at last week’s 6427 high and that a Wave IV pullback is underway.

The initial target for the Wave IV pullback is a band of support in the 6150 - 6130 area coming from previous highs. A sustained break of this support level would then open the way for a deeper Wave IV decline towards support at 5970 - 5950ish.

US 500 daily chart

• _{Source: TradingView. The figures stated are as of 4 August 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}